Various Western Australian legislation makes a director of a company criminally liable for certain acts or omissions of the company.
In 2008 COAG identified that legislation which imposed personal criminal liability on directors for corporate offending was being “introduced as a matter of course and without proper justification, and because of a concern that inconsistencies in the standards of personal responsibility both within and across jurisdictions were resulting in undue complexity and a lack of clarity about responsibilities and requirements for compliance”.
The type of liability under consideration was “derivative liability” (ie liability by reason of a director not taking all reasonable steps to prevent the corporation from committing a offence) as opposed to, say, “direct liability” (ie liability by reason of a director committing an offence directly) or “accessorial liability” (ie liability by reason of a director being involved in the corporation committing an offence).
COAG developed the following agreed set of principles to guide the reform of director liability:
1. When a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance.
2. Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire act.
3. A “designated officer” approach to liability is not suitable for general application.
4. The imposition of personal criminal liability on a director for the misconduct of a corporation should be confined to situations in which there are compelling public policy reasons for doing so - for example, the potential for significant public harm that might be caused by the particular corporate offending; liability of the corporation is not likely on its own to sufficiently promote compliance; and, it is reasonable in all the circumstances for the director to be liable having regard to factors including: the obligation on the corporation and, in turn, the director is clear; the director has the capacity to influence the conduct of the corporation in relation to the offending; and, there are steps that a reasonable director might take to ensure a corporation’s compliance with the legislative obligation.
5. When the 4th principle is satisfied and directors’ liability is appropriate, directors could be liable when they have encouraged or assisted in the commission of the offence or have been negligent or reckless in a corporation’s offending.
6. In some circumstances it may be appropriate to put directors to proof that they have taken reasonable steps to prevent the corporation’s offending if they are not to be personally liable.
Under Western Australian legislation liability could extend to beyond a director of a company, including an officer of a body corporate (eg an incorporated association under the Associations Incorporation Act 2015).
On 6 December 2022 the Western Australian parliament passed the Directors’ Liability Reform Act 2023 (the Amending Act) to give effect to those principles. The changes effected by that Act are progressively coming into effect from 4 April 2023.
Prior to the passing of the Amending Act, various pieces of legislation contained provisions that stated that officers of bodies corporate may be prosecuted in respect of offences in the act.
The Amending Act deletes provisions in other legislation that impose a blanket derivative liability in all offences in an act and creates overarching liability provisions in the Criminal Code (sections 37 to 43).
The new sections of the Criminal Code apply to offences under acts which state that the Criminal Code applies. By reason of the Amending Acts the acts under which the Criminal Code applies to offences include Aboriginal Heritage Act 1972, Building Services (Registration) Act 2011, Charitable Collections Act 1946, Contaminated Sites Act 2003, Fair Trading Act 2010, Food Act 2008, Home Building Contracts Act 1991, Liquor Control Act 1988, Pharmacy Act 2010, Retail Trading Hours Act 1987, Retirement Villages Act 1992 and Workers’ Compensation and Injury Management Act 1981.
The sections provide that:
1. If a body corporate is guilty of an offence, an officer of the body corporate is also guilty of the offence if the officer failed to take all reasonable steps to prevent the commission of the offence by the body corporate.
2. In determining whether things done or omitted to be done by the officer constitute reasonable steps, a court must have regard to:
2.1 what the officer knew, or ought to have known, about the commission of the offence by the body corporate;
2.2 whether the officer was in a position to influence the conduct of the body corporate in relation to the commission of the offence; and
2.3 any other relevant matter.
Some legislation reversed the onus of proof in the prosecution of an officer of a body corporate, requiring the officer to prove that the officer took reasonable steps to prevent the body corporate from committing the particular offence.
The Amending Act removes the reversal of the onus of proof except for what are considered to be particularly serious offences eg offences in the Medicines and Poisons Act 2014 that relate to the manufacture or supply of dangerous poisons. By the Amending Act the Criminal Code has three alternative scenarios for the onus of proof, being that either:
1. The prosecutor has the onus of proving that the officer failed to take all reasonable steps to prevent the commission of the offence by the body corporate.
2. The prosecutor only has the onus of proving that the officer failed to take all reasonable steps to prevent the commission of the offence by the body corporate if, and only if, evidence that suggests a reasonable possibility that the officer took all reasonable steps is first adduced by or on behalf of the officer.
3. The officer has the onus of proving that the officer took all reasonable steps to prevent the commission of the offence by the body corporate.
Which of those applies is determined by the act which creates the offence.
The intent is that, no matter what, an officer will not be liable in circumstances in which there were no reasonable steps that the officer could have taken to prevent a body corporate from committing an offence.
In the second reading on the introduction of the bill in the Legislative Assembly the Attorney General said that the intent of the amendments was to:
- Hold officers to account in appropriate circumstances.
- Ensure that when legislation looked to impose derivative liability, it did so not as a general blanket provision but rather with specific consideration of the seriousness of the offence and the extent of the liability that ought properly be imposed on an officer to act as a deterrent and protect the public.
- Substantially reduce the number of derivative liability provisions.
- Confine derivative liability provisions that reverse the onus of proof, whilst leaving in place a sufficient layer of regulation to ensure that officers of bodies corporate take all reasonable steps to protect the public from corporate offending.
The Amending Act requires that the Minister to review the operation and effectiveness of the amendments made by Amending Act and prepare a report based on the review as soon as practicable following the 5th anniversary of the passing of the Amending Act and to cause the report to be laid before each House of Parliament as soon as practicable after it is prepared, but not later than 12 months after the 5th anniversary.